Hey everyone hoping somwon can point me in the right direction with this.
Just like a good portion of people all over the world i myself have gotten into cryptocurrencys and crypto mining as of recent. I just connected my Coinbase BTC Wallet to Quickbook Self Employed to help record my transaction of reciving payments from Mining Bitcoins. Now i understaind that i need to record the incoming payments from mining for tax purposes which isnt a problem on here as im just listing them as "Income" for now. However here is my delema. If i was to take that bicoin and transfer it into USD by sending it to my paypal account (Which is also being recorded on Quickbooks Self Employed) How to I properly record that transaction? I asume quickbooks will see that as an "income" into paypal. However thiers going to either be a loss or gain during that transaction from the origonal time i recived my Mining Payment. So how do i record that as its going to show a double income in quickbooks even thought technicly i only recived one payment from mining. One being from the origonal mining payment and then another from when i transfer it from BTC to USD when going into paypal.
Should i not be recording my transaction from coinbase on here? Should i just keep an entire seprate accounting book for my bitcoin transactions? or should i just clasify my coinbase transactions as "Transfers" and record the BTC to USD (Paypal Income) as actual Income? Or maybe even somthing else?
*EXAMPLE OF WHAT IM TRYING TO EXPLAIN DOWN BELOW*
Numbers are only for example
Starting off, say i Recived .00100000BTC ( Equals 10$USD) - from mining bitcoin
- Quickbooks shows that 10$ as income into my CoinBase Account
- Several days gose by and the value of BTC went up to say 15$ for that same BTC amount as before (.00100000BTC)
- I then Take that BTC and send it too my paypal account were paypal transfers that BTC into the USD equvilant which is now 15$
- Now i have 15$ in my Paypal Account and now Quick books sees that transaction and lists that as income
- Now (again here is my delema) i now have two income transactions. First one from coinbase at 10$ and the second being the 15$ on paypal. But technicly i only recived one income.
How do i record this properly. Again any help would be great!
Hi, @Mattrw16289 - welcome to QB Community :smileyhappy:
You bring up an excellent question that highlights how standard accounting practices often struggle to handle cryptocurrencies. I'm very interested to see the responses from other QB Community members! Who wants to take a swing?
I like puzzles so here is my stab at it, this is not intuitive and may be hard to follow.
I do NOT use banking downloads, so if you rely on them to make your entries, instead of making entries, and matching the download - sorry I can not help with that aspect
To recap, you got paid $10 (effectively), you then got an extra $5 due to valuation increase - so the total amount you actually got as income is $15
Create bitcoin as an inventory item
when you get paid 0.001 bitcoin, create an expense transaction :
1. in item details section, select the bitcoin item, qty = 0.001, and total cost = $10
2. in the account details section, select your bitcoin income account and enter the same amount as a negative number (-$10)
3. save the zero dollar transaction
P&L shows $10 inome
Balance sheet shows $10 inventory asset
You send bitcoin to paypal in real life, so then in QB
sell the inventory item bitcoin to paypal on a sales receipt, qty = 0.001, and sales price = $15 (from your example), deposit to the paypal account in QB
Net income $15
Balance sheet inventory asset is zero,and payapl bank account show balance of $15
Thank you for that reply. I will deffinitly give that a shot! However i hope somthing comes of this soon, that is a little bit easier. Haha
Again thank you!
I've been wondering when we would see some cryptocurrency questions here in the community! It's exciting territory.
What got you interested in crypto? What has your experience been exchanging it?
I have ran into this EXACT problem, just like you.
I do crypto mining as a side income for my business.
I love using QuickBooks for my business, but it is EXTREMELY painful to track crypto mining income.
There are 2 taxable events us crypto miners have to worry about when we track in our books (for USA):
1. When we receive crypto from mining, paid on in crypto coins (Need to calculate current market value at time of receiving as Income)
2. When we sell those coins (Short Term/Long Term Capital Gains)
I found myself needing to input these entries manually everyday, but it is a HUGE PAIN because sometimes I get paid out several times a day.
Since I am a programmer, I was going to script this process for myself, but am coming to realize more people are having this problem.
I'm looking to build a QuickBooks plugin application to automate this entire process and make it easier to manage.
Would you be willing to connect and have a conversation about this issue?
I'm doing some market research before building the product, and would benefit greatly from your experience.
Please respond to me @bitzerk so we can connect.
So I don't think creating the inventory item is the correct way to go. I am a bookeeper for a software development blockchain company so we deal a lot in crypto. The one thing I keep coming across is that you need to list your crypto as an asset first and then treat it as though you are liquidating that asset when the time comes to trade it into cash/income.
Therefore, what I would suggest doing is listing it as an asset at market value of the time you get paid, and then when you liquidate or convert, you can calculate the gain or loss from the new market value of what you actually receive when you cash out.
I am no professional and am still trying to figure this out myself, but that's my best guess from all my research. They are treated more like stocks than like inventory.
I appreciate you sharing your knowledge on this matter, @SplyseofLife.
It's exciting to see the world of finance evolve to match our modern culture, and our currency to follow suit. To further assist those that see this thread, do you mind explaining how you would go about recording the gain or loss from the sale at new market value?
The Community recognizes suggestions from professionals and novices alike, so I'm sure your assistance will be a welcome resource to anyone who seeks to track cryptocurrency with QuickBooks. Thanks for contributing, wishing you a wonderful rest of your day.
I am actually going through the process and research now and I don't want to give any solid advice as I am not sure quite yet. We are working on it now with my accumulated research and the advice of some accountants. I will update when I do have more information.
The majority of our income from crypto has been through the generation and sale of a token so there isn't much loss or gain to calculate in my opinion right now, since there was no value of the token to begin with until it was listed on the market.
What I do advise people to do, and what I've been doing, is keeping a detailed list of transactions such as paying people for services.
This is great insight, I've actually wondered this for many years when my friends started dabbling in crypto early on:
The one thing I keep coming across is that you need to list your crypto as an asset first and then treat it as though you are liquidating that asset when the time comes to trade it into cash/income.
Are there tax implications for counting this as an asset and not income? Does listing it as an asset skew the actual valuation of a business?
I think your comparison to stocks will help folks conceptualize the process. Stocks are subject to laws and regulations when it comes to things like shorting - anything to watch out for with crypto?
I'm new here and my business is also crypto mining. Here's how I intend to move forward with keeping accounts on my business....
At first I though it would be important to track each individual mining reward, the mining fees and the fees to get crypto from the exchange to my bank account in fiat. I then released that it probably is not needed as ALL returns from mining are going to be tax deductable and there will be no element of Capital Gains. My reasoning is, you started with nothing so anything you make is a "gain". Based on this theory, every penny that arrives in my bank account from my exchange is taxable at whatever rate is applicable and everything that happens in between ie. the crypto went up in value whilst in the exchange, coinbase charged me 45 pounds to convert my crypto to fiat, is all neither here nor there. The bottom line is how much arrived to my bank account!? That amount is then the business income for that given day and is taxed appropriately.
I figure that whilst the crypto is sitting in an exchange it doesnt hold a true value. The true value is what pops out the other end in the form of GBP. Surely thats what the taxman is interested in, not what is hiding in some shady crypto exchange that could be worth next to nothing in 6 months time?
Based on this approach, I have stoppped printing out endless pages of reports of what I hold in crypto, saving me a lot of time and paper! I simply focus on the end output, when I decide to exchange my coins for REAL money.
If there is anyone who feels the taxman might get the royal hump with me, please let me know lol
There's actually a website called https://bitcoin.tax/ that will actually calculate your gains and losses.
I signed up for a free trial, but I have yet to utilize it so I have no personal input.
I would say for a business that has generated its own token and has won crypto as a prize for a competition, I am not tracking the monetary value at this point. I agree with you that the IRS is probably way more worried about tracking your income when it is converted to cash and not its value sitting in some exchange.
However, when your crypto is revenue you earned from providing a service, that is almost like issuing a stock option to an employee, which you would claim on your taxes. So I do think it would be frowned upon for you to completely exclude any earnings that you gained and sitting in the exchange entirely.
I have the same issue. My plan is to track the mining income in Quickbooks only. So the coin is created, and you effectively got income from the creation, you received a payment. I group the income of coin generation by month, so I don't have too many entries. Once the coin is created it becomes an asset, like a stock. I track this asset using cointracking.com. Cointracking will generate the tax forms for trading the coins. If someone has a better way, please let me know.
@SplyseofLife, do you know who runs bitcoin.tax? I am optimistic, but as someone with little to no experience, I suppose I am still confused as to when bitcoin goes from being an asset to income/liquid, and if I were to convert halfway through the year at a particular rate, how I could track that kind of information.
I suppose you could set up several asset accounts in QuickBooks and create entries weekly/monthly for the amount of coin you have in holding each month. Then, you could make a JE each time you convert the coin into cash so the original asset account keeps a clean record and remains balanced. What I am a bit tossed on is how to keep up with the highly variable exchange rate. I guess an external program like bitcoin.tax might be a good auxiliary program to handle the gains and losses and I'd just update the asset account in QuickBooks when needed?
@JamesOng that's a conversation I've had with a lot of people. Sine there are no legalities on how to claim this type of income in the US, I don't think there's a particularly right or wrong answer until the government addresses that.
However, I think bitcointax may be the only way to keep up with all the fluctuations in market price vs. book value. Although how necessary it is to change that valuation is still up for debate. I don't think it's entirely necessary to do a weekly update; you don't depreciate assets on a weekly basis.
I don't have a solid answer obviously, but my best judgement would be don't sweat updating the valuation on a constant basis. If you're a large corporation and present a balance sheet to BOD on a monthly basis., maybe once a month would be sufficient?
I think the most important part is keeping track of the valuation or the crypto you turn into cash. That is actual money that the IRS can tax, that's mainly what they are worried about, in my opinion.
Your experience and perspectives are invaluable, thank you. That's what I was hoping - since the market fluctuates so quickly, it doesn't make sense to constantly update the account holding the coin. Do you think a monthly depreciation is too much for a small individual buyer? I suppose it only really matters when you're writing off the loss.
What are your thoughts on handling coin bought at different times? For instance, if I bought at $100 a coin on Monday and $150 on Friday, I could make a new entry each time for the QTY at the rate bought, with the asset account holding the aggregate total. If I depreciate the entire asset account to reflect fluctuations, will my loss be recorded accurately for the differing rates?
I might be over complicating things. The QuickBooks records don't need to constantly reflect the value since whatever mining program you are using already has those values. I don't know how often or frequently folks acquire coin, I only know my friend mined in small quantities every few months in 2010-2011. I imagine folks who mine full-time need a very robust system.
Your last point makes a ton of sense - if I had to put my energy somewhere, I should focus on the actual cash conversion, not constantly tracking the asset valuation. I am sure there will be other folks with different opinions, and there may not truly be a "casual coin collector," but I'd want to optimize my time and do as minimal tracking as possible to stay compliant!
I'm in urgent need of advice from my Crypto family. My bank, Cashplus have just informed me they are closing my business account with 60 days notice and absolutely no explanation! Everything I have done through my account has been perfectly legitimate and they opened my account on the understanding I was running a Cryptomining Company.
I'm curious to know what banks you guys are using in the UK? A few months back I attempted to open a business account with Barclays and was refused. I'm eager to get this matter resolved asap so I can just move on without fear of getting future accounts closed.
Thanks for your help in advance
@Marwood I am not located in the UK so I can't help you with specifics, but here's the problem I've run into tin the US.
Many banks don't want to deal with crypto because of the large deposits that are made and the manpower that it takes to monitor these. I don't completely understand why they won't handle it at all, but regardless. I've heard of many people having their bank accounts frozen or forced to be closed because of this.
The only luck I've found is dealing with investment companies like Fidelity and Merill Lynch because they are used to dealing with large amounts of income from companies.
Sorry this isn't a direct answer for what bank to use, but I figured I would let you know my experience.
I feel your pain on this, especially if you have many transactions each year, it can quickly get very complicated.
We've been building a Quickbooks App on Blockpath.com that syncs your Bitcoin activity directly into your Quickbooks account. It has not been released yet, but it should be available in ~1 month.
I'm looking for beta testers who would like to try it for free for 6 months in exchange for your feedback. Currently the app helps you monitor groups of addresses or xpubs for transactions, and can sync the balance, exchange rates, and transactions into Quickbooks, including payments for sales/mining, withdrawals, and transfers between accounts.
I'm working on handling capital gains when you sell coins on an exchange, that should be finished in a week or so.
If you are interested in beta testing, send me a message on here or leave a comment below. Thanks!
I'm interested, however, I'm new to QB, new to crypotocurrency and I have a new client that I could test this on.
Yup, I'm happy that a couple people have messaged me to beta test our QuickBooks plugin, still open to more if anyone is interested. Otherwise, it'll hopefully be available in the app store here shortly!